Pricing Products VAT Nightmare?

Question

Yes Im being a bit thick at present but if anyone can dish out some answers on this it would be much appreciated...

Ok Ranbir buys 1 toy for £50 inc VAT, Ranbir wants to make £10 profit. So he sells the toy for 50 + 10 + VAT. Does he add the VAT to the £60 or to the £10 only? and if he wants to reclaim the VAT he has paid on the £50 doe she have to be VAT registerd.

I think most of you can see where im gettign to on this question... im gettign in a pickle with buying and selling pricing, VAT, and registering for tax.

any ideas anyone ?

Answer 1

First, if you are not Registered it's illegal for you to CHARGE VAT to your Customers (but of course you still have to PAY VAT to your suppliers).

Once you are Registered you should get piles of paper telling you want to do. Also you should have Accounting Software that will help.

ESSENTIALLY ...
You Charge VAT on your Sales and Claim VAT on your purchases.

You then pay Customs & Excise the difference.

In your example.... if you sell for £60+VAT = £70.50 (so you Charged VAT of £10.50)

If you SUPPLIER charged you VAT on the original £50 cost, then your Claim that back ... on a £50 cost, £7.45 would have been the VAT.

Charges (£10.50) less Costs (£7.45) means you pay the Government (£3.05) ...

Note you have to take into account the VAT owing when calculating profit margins .. in your example, if the Item cost £50 & you sold it for £70.50 your immediate profit is £20.50.

However you owe Customs & Excise £3.05 ... so your real profit is only £17.45

NOTE - to claculate what you owe Customs&Excise, you don't 'link' items togther - you Charge VAT on EVERYTHING you sell (no matter where it comes from) and you Claim all the VAT that you actually pay out (so you Charge on eg. 'Consultantcy' and you Claim back on Petrol, Business Travel costs, Hotel costs, meals etc etc as well as all the Product you purchase)

You can't claim back VAT that you did not pay. So in the example, if your supplier is not VAT registered then the Cost (£50) includes zero VAT.

You must still charge your customers 17.5% VAT but now there is nothing to 'offset' it against. So you pay Customs & Excise the whole £10.50 (and now your real Profit on that item is only £10)

Answer 2

If the taxable turnover is over the registration limit then you must be registered for VAT. If it is under registration is voluntary but let's look at the pricing mechanics here.

If not registered -

Cost is £50, profit £10 so selling price must be £60.

If registered -

Cost is actually only £42.55, profit £10 so selling price is £52.55 plus VAT = £61.75.

That is the usual way of working it out but you will see it is the same as using the VAT inclusive figure and charging VAT on the profit only (the Value Added), i.e. £50 +£10+ £1.75.

Answer 3

First, he has to be VAT registered to charge VAT to his customers and to reclaim VAT on his purchases. Income over £61k in a 12 month period adn you have to register.
Assuming he is VAT registered, he should look at the price of the toy net of VAT, as that is what he will ultimately pay for the toy, once he has reclaimed his VAT. To work out a price net of VAT you multiply by 7 and divide by 47 to get the VAT element (in this case, £7.44). Then you add your profit margin to give you the net selling price, then you add VAT at 17.5% to give you what you would charge the customer.
You then send the VAT to HMRC, having deducted the £7.44 VAT you paid when you bought the item.
if he is not VAT registered, then he charges £50, plus his mark up to the customer and does not add his own VAT.

Answer 4

I think I understand your question. When you sell the goods to the businesses, you sell them at YOUR price of supply to them. This doesn't have to be at the marked price. (For instance, publishers do not sell books to book shops at £6.99 each, even though they are priced as such on the back cover. The bookstores still have to make money so the publishers sell them to the stores at, say, £4.50.) Whatever the price you sell the goods at, you cannot charge VAT on the goods without being registered. And you cannot reclaim any VAT from the purchase of supplies for you to produce the goods in a resaleable state either. It could be beneficial to be VAT registered from the start if you are only selling to businesses as they are more likely to buy from a fellow VAT registered business. Hope that makes sense, although there is plenty of information held on the HRMC website.

Answer 5

yes but it will cost you